The costs of a constructed facility to the owner include both the initial capital cost and the subsequent

operation
and maintenance costs.

*includes the expenses related to the initial establishment of the facility

*initial capital cost 10

*Expenses in subsequent years over the project life cycle includes the following expenses

*operation or maintenance costs

The magnitude of each of these cost components depends on the nature, size and location of the project as well
as the management organization, among many considerations. The owner is interested in achieving the lowest
possible overall project cost that is consistent with its investment objectives.

Approaches to Cost Estimation

Cost estimating is one of the most important steps in project management. A cost estimate establishes the base
line of the project cost at different stages of development of the project. A cost estimate at a given stage of
project development represents a prediction provided by the cost engineer or estimator on the basis of available
data.

According to the American Association of Cost Engineers,

COST ENGINEERING is defined as the area of engineering practice where engineering judgment and
experience are utilized in the application of scientific principles and techniques to the problem of cost estimation,
cost control and profitability

Types of Construction Cost Estimates

Construction cost constitutes only a fraction, though a substantial fraction, of the total project cost. However, it
is the part of the cost under the control of the construction project manager

A construction cost estimate serves one of the three basic functions: design, bid and control. For establishing
the financing of a project, either a design estimate or a bid estimate is used.

1. Design Estimates. For the owner or its designated design professionals, the types of cost estimates
encountered run parallel with the planning and design as follows:
o Screening estimates (or order of magnitude estimates)
o Preliminary estimates (or conceptual estimates)
o Detailed estimates (or definitive estimates)
o Engineer's estimates based on plans and specifications

For each of these different estimates, the amount of design information available typically increases.

2. Bid Estimates. For the contractor, a bid estimate submitted to the owner either for competitive bidding or
negotiation consists of direct construction cost including field supervision, plus a markup to cover general
overhead and profits. The direct cost of construction for bid estimates is usually derived from a combination
of the following approaches.
o Subcontractor quotations
o Quantity takeoffs
o Construction procedures
 3. Cost Control

Introduction

Cost effectiveness and control assume greater importance in a country like India, where limited resources have
to be optimally utilized. Capital, skilled human resources, effective time scheduling, etc. are lacking especially
in building industry. Hence, there is a greater need for professionalism, in this unorganised industry.

Optimal utilization of resources is a prerequisite to ensure cost effectiveness of works. The resources which
summarily reflects optimal utilization of all the resources is when funds are progressively consumed from the
commencement to completion of works. Cost effectiveness is not limited to implementation phase only. It covers
good planning, optimal design, selection of suitable contractors, and effective management of works. All the key
players, viz. consultant, client and contractor have a significant role to play in achieving cost effectiveness in
construction works. Most works are executed through a contractor and his selection is a critical issue for
successful completion of works. Breakup of tendered cost is as shown:

BREAK-UP OF TENEDERED COST

Market Rates of Materials,

Labour and Hire Changes of
Machinery

Tendered Contractor's Overheads

Cost

Contractors Profit

Contingencies

For Client (owner)

COMPLETION COST
 Tendered Cost

Variations
Completion
Cost
Claims Allowed

Contingencies

OBJECTIVES of COST CONTROL

1. To determine or estimate the profit

- The cost control data provides the total expenditure incurred on the work at the regular interval or at
any given duration. The contractor can determine his profit or loss by comparing the likely payments
to him from the measurements of the completed portion of the work with the actual expenditure
incurred by him. Thus the cost control provides an opportunity to the contractor to take corrective
measures if found some deficiency somewhere.
2. To locate areas of inefficient functioning
- Cost control data provides the day to day cost incurred on various items of works and gives warning
to the site Engineer if the expenditure is higher than the estimated cost. The reasons for inefficient
working can be investigated and remedial measures taken at the appropriate time.
- In case cost control methods are not adopted, the profit or loss from the work executed will be known
at the end of completion of the work and it would be impossible to pin point the exact reason for the
loss. Thus cost-control technique is a useful tool to find out the inefficiency in the execution of work.
3. To serve as a basis for estimated
- The cost control data of work provides feed back to the estimator for updating the knowledge of
output data of men and machines. The unit rates of the cost for various item of work can be worked
out after the completion of a job, which would be helpful in preparing the realistic estimates for future
works which the contractor may like to tender. However the cost depends upon the local conditions
as well as on the rates of labour. Thus at the time of comparing cost of two similar works these factors
also should kept in mind. Thus the unit rates of costs should not always be applied types of works
without proper study.
- The inefficiency in the use of labour and machinery is wide spread. Thus cost control on projects has
been found very useful when applied to labour and machinery. Cost Control of the materials used at
site of work also has been found very useful.

COST SAVING AREAS

Cost of the production consist of (i) material, (ii) Labour Cost, and (iii) overheads, therefore to reduce the
cost, it is necessary to bring down the expenditure on these elements by the way of judicious and rational
distribution of manpower, deployment of machineries, increasing the utilization and reliability of equipment,
selection of the right size and type of equipment and their accessories, some of the examples of cost saving are
illustrated.

A. Reduction in Material Cost

- Avoid overstocking or inventory build-up
- Minimum handling of materials to be ensured
- Avoid Wastage
- Planning materials procurement in advance
- Ensure purchase of right quantities of right quality at the right time from the right source and at
a right price
- Decision regarding whether to be purchase an item or to be manufacture
- Utilized scrap and waste material.

B. Reduction in Labor Cost

- Judicious and rational distribution of workforce.

- Decision for single shift, double shift, triple shift or extended shift (one shift of 10 to 12 hours)
be taken considering overall economy.

-Suitable inspection and supervision methods be introduced.

-Operators and other skilled workers, and supervisors should be trained from time to time to make
them well conversant with the latest technology to enable to achieve maximum productivity.

- Labour rate should be decided considering actual norms of output.

C. Reduction in Overheads

- To keep control on indirect labour.

- To have versatile machine with different accessories for optimum utilization.

- Overhead expenditure should be maintained in a proper record and compared with estimates,
standards or budget from time to time.

- Construction of colonies, offices, boundary walls etc, be made by utilizing the local materials for
economy.

-Reduction in avoidable unproductive expenditure to the maximum.

CONSULTANTS ROLE

Consultant plays a significant role in preparation of Feasibility Report, Detailed Project Report, planning and
designing and selection of a suitable contractor. The following issues merit consideration:

(a) Mechanization of some of the in situ operations (e.g. excavation, levelling, trenching, lifting and
conveying).

(b) Adopting prestressed concrete technology in lieu of reinforced concrete.

(c) Minimizing in situ works and specifying factory made/ precast elements (e.g. doors and window frames
and shutters).

(d) Use of high strength materials (e.g. controlled concrete-design mix and ready mix concrete, higher grade
of cement concrete and higher yield strength steel bars).

ROLE OF RESIDENT ARCHITECT

* Prompt release of payments: For this necessary certification of bills would be necessary by resident
architect/engineer.

* Rates for variations should be settled on the eve of execution of such items of work.

* Treating contractor as a resource and partner in project implementation.

* To appreciate limitations of his role as final authority. As per ICB document the position is as under:

In matters regarding materials, workmanship, removal of improper work, interpretation of contract drawings and
specifications, mode and procedure of carrying out the work, the decision of Engineer-in-charge shall be final
and binding on the contractor. The final authority of Engineer applies to technical considerations and does not
include decisions regarding sums due to or from the contractor or extension of time. If the decisions involve
financial implications or extension of time, the contractor has adequate protection against arbitrariness of the
owner. If this is kept in view, levy of liquidated damages inspite several owner caused delays would not to be
practiced.

COST ANALYSIS CAN BE DIVIDED INTO FOLLOWING DIVISIONS

1) LABOUR DIVISION: The labour division will be responsible for keeping and checking the labour costs.

2) MATERIALS DIVISION: This division will be responsible for the purchase and checking the costs of all
materials.

3) GENERAL ITEMS: Items which can neither be classified under the head materials nor labour are classified
under the head general item.

4) SUB CONTRACT HEAD: If due to economic consideration or due to the specialized nature of the work,
contractor decides to get some part of the work done on sub-contract basis, then the amount of each sub-
contract will be shown under this head.

5) OVERHEAD CHARGES: Expenses for site supervision, maintaining a head office etc. are shown under the
head over head changes.

METHODS OF COST ANALYSIS

At the time of cost analysis, all the estimates are analyzed first and afterwards labour and materials costs
are separated.

Table 8.1 Farm of Abstract of cost

S. NO. ITEMS QUANTITY RATES PER UNIT COST

COST EFFECTIVENESS AND CONTROL CAN BE ACHIEVED IN THE FOLLOWING STAGES

 A. At conceptual and design/planning stage.
B. At tender/contract finalization stage.
C. At execution stage.
D. Post execution stage.

These measures are in tandem but extend from the earlier mentioned roles of players like consultant,
client/owner, contractor and site engineer/architect.

(a) At Conceptual and Design/Planning Stage

Here cost effectiveness does not end in cost control only but extends to optimization of material,
construction, manpower and machinery. It shall not just result in the lowest or cheapest alternative, but the
best option in that context.

Derivation of a mix in terms of technologies, construction methods (local and traditional), innovative use
of local materials, use of full or partially prefabricated elements and innovation in design, e.g. light weight
foam panels for roofs, panel construction for walls, variations of in-fill panels and jackarch concept or brick
vault, etc. They have to be suitably integrated along with routine construction practices to provide variety
and choices.

(b) At Tender or Contract Finalization Stage

Cost control and effectiveness are achieved through proper and realistic estimates, finalization and
freezing of scheme which helps in realizing correct estimates, avoiding or limiting extras, variations and
changes in design or detailing, clear and unambiguous specifications, clear possession of site by client (i.e.
clear titles) for immediate commencement of construction , prequalification of contractors, choice of materials
and methods of construction in design for which steady supply of materials and skilled manpower are
assured and selection of the contractor based on his capacity to complete the project in time rather than on
the basis of lowest bid.

Further, negotiating immediately after award of contract/acceptance of tender regarding non-tendered

items, extras and specialists services can control costs effectively. Besides, the Architect/Consultant shall clearly
state the type, brand and quantity of materials to be used by supplying list (along with specification) at tendering
stage itself i.e. as a part of tender documents. A rough estimation for cost escalation and suitable provision for
contingencies can make the estimate more realistic.

Adoption of Lumpsum contract can result in cost overrun if all items are not finalized. Any extra can
escalate the cost and regulation of contract price may result in delays/disputes.

(c) At Execution Stage

Action to release of site by owner, mobilization of resources, viz. capital, men and machinery by the
contractor, ensuring continuous supply of materials either by himself or through subcontractors and vendors and
storing them as per guidelines (specified in contract document) for minimum wastage should be ensured.
Implementation schedules should be realistic and networked so that work stoppage are minimal/absent. Release
of money to the contractor for executed work in time should also be ensured so that he can balance his cash
outflow and cash inflow requirements. Construction schedules to be maintained, i.e. either speeding up of work
or delaying execution will result in cost overrun/or imbalance in cash flow.

Proper and timely release of drawings and details from consultants office cuts down delay and cost.
 Site organization should be effective to ensure safety of workers and save transportation and moving
distance of materials and men. Proper maintenance of site order book/measurement books, etc. with written
instructions from site engineer and consultant should be ensured to avoid delay and confusion.

Regular site meeting headed by the consultant or his designated representative can ensure smooth
progress of work along with quality control. (This avoids sub-standard work and duplication/replacement thereby
saving cost and time.)

Balanced use of labor, materials and machinery can cut costs directly and also indirect costs (for indirect
costs relating to office staffs, stationary, telephones, etc. keep growing with delay in execution). Men and
machinery should not be kept idle.

Incentives like bonus, cash awards to workers ensure greater productivity and innovation thereby cutting
costs.

Employment of skilled labour/supervisors ensures quality control and hence cost control. Simultaneously
prescribed tests on materials should be conducted and performances recorded so that use of sub-standard
material is avoided.

(d) Post Execution Stage

Proper execution of work as per drawings and specification ensures few defects and their rectification during
defects liability period.

Materials used should be such that they easily replaced in case of damage/destruction to save cost.
Simple design and clarity of construction ensures easy maintenance and ensures longer life for building.
Recurring expenditure e.g., repairs, painting etc. should be kept to minimum through proper/regular
maintenance. (This is ensured by good design, i.e. use of materials like stone, steel, etc., which require
low maintenance, which results in overall reduced costs).

VALUE ESTIMATE

Value engineering (VE) is a systematic method to improve the "value" of goods or products and services by
using an examination of function. Value, as defined, is the ratio of function to cost. Value can therefore be
increased by either improving the function or reducing the cost. It is a primary tenet of value engineering that
basic functions be preserved and not be reduced as a consequence of pursuing value improvements

Value engineering is sometimes taught within the project management or industrial engineering body of
knowledge as a technique in which the value of a systems outputs is optimized by crafting a mix of performance
(function) and costs. . In most cases this practice identifies and removes unnecessary expenditures, thereby
increasing the value for the manufacturer and/or their customers

VE follows a structured thought process that is based exclusively on "function - In value engineering "functions"
are always described in a two word abridgment consisting of an active verb and measurable noun (what is being
done the verb and what it is being done to the noun) and to do so in the most non-prescriptive way possible

EXAMPLE:

For example a screw driver that is being used to stir a can of paint has a "function" of mixing the contents of a
paint can and not the original connotation of securing a screw into a screw-hole.
In the screw driver and can of paint example, the most basic function would be "blend liquid" which is less
prescriptive than "stir paint" which can be seen to limit the action (by stirring) and to limit the application (only
considers paint). This is the basis of what value engineering refers to as "function analysis

Value engineering is also referred to as "value management" or "value methodology" (VM), and "value analysis"
(VA). VE is above all a structured problem-solving process based on function analysisunderstanding
something with such clarity that it can be described in two words, the active verb and measurable noun
abridgment.

Value engineering is often done by systematically following a multi-stage job plan.

- Larry Miles' original system was a six-step procedure which he called the "value analysis job
plan
- One modern version has the following eight steps.

i. Preparation
ii. Information
iii. Analysis
iv. Creation
v. Evaluation
vi. Development
vii. Presentation
viii. Follow-up

THE 4 BASIC STEPS

1. Information gathering - This asks what the requirements are for the object. Function analysis, an important
technique in value engineering, is usually done in this initial stage. It tries to determine what functions or
performance characteristics are important. It asks questions like: What does the object do? What must it
do? What should it do? What could it do? What must it not do?
2. Alternative generation (creation) - In this stage value engineers ask; What are the various alternative ways
of meeting requirements? What else will perform the desired function?
3. Evaluation - In this stage all the alternatives are assessed by evaluating how well they meet the required
functions and how great the cost savings will be.
4. Presentation - In the final stage, the best alternative will be chosen and presented to the client for final
decision.

TYPES OF PROJECTS THAT BENEFIT THE MOST FOR VALUE ENGINEERING

1. Cost Project since

2. Complex project
3. Repetitive costs
4. Units projects
5. Projects w/ very restricted construction budgets
6. Projects with compressed design programs
7. Highly visibility projects
 ETHICS

Fundamental Principles

Civil engineers uphold and advance the integrity, honor and dignity of the civil engineering profession by:

1. using their knowledge and skill for the enhancement of human welfare and the environment;
2. being honest and impartial and serving with fidelity the public, their employers/employees and clients;
3. striving to increase the competence and prestige of the civil engineering profession; and
4. supporting the professional and technical societies of their disciplines.
Fundamental Canons

1. Civil Engineers shall hold paramount the safety, health and welfare of the public and shall strive to
comply with the principles of sustainable development in the performance of their duties.
2. Civil Engineers shall perform services only in areas of their competence.
3. Civil Engineers shall issue public statements only in an objective and truthful manner.
4. Civil Engineers shall act in professional matters for each employer or client as faithful agents or
trustees, and shall avoid conflicts of interest.
5. Civil Engineers shall build their professional reputation on the merit of their services and shall not
compete unfairly with others.
6. Civil Engineers shall act in such a manner as to uphold and enhance the honor, integrity, and dignity
of the civil engineering profession.
7. Civil Engineers shall continue their professional development throughout their careers, and shall
provide opportunities for the professional development of those civil engineers under their supervision.
Adopted in September 2001 as part of the Manual of Professional Practice for Civil Engineers published by
the Philippine Institute of Civil Engineers